A key challenger bank hikes its floating rates in an out-of-cycle rise that includes their overdraft rates, ending the rate advantages it had with these types of lending

"Expect more."

That used to be the TSB Bank tag line. And now that applies to the bank's floating mortgage rate.

From Thursday June 22, the interest rate for these loans will be raised by +15 basis points to 5.80%.

That will bring it up to the levels of most other banks and the large Aussie-owned banks. Only Kiwibank and the Co-operative Bank now have floating rates materially lower.

The rate for TSB Bank's revolving credit lending will be raised the same amount to the same new level.

The rate for TSB's 'Lifestyle' reverse equity mortgages will also rise by +15 bps to 7.06%.

The last time TSB Bank raised its floating interest rate for borrowers was in late March when the bank added +11 bps to this rate.

Out-of-cycle rate changes are now the favoured way for banks to change these floating rates, separating them from the Reserve Bank's Official Cash Rate changes.

Overall, banks have $50.7 billion of mortgages on floating rate terms.

In its latest financial results for the year to March 2017, TSB Bank revealed an after tax profit fall from $61.6 mln to $46.3 mln.

These same results show they have $3.85 bln in residential mortgages, which is 82% of their total loans and advances.

TSB Bank has also increased the interest rate for its Personal Secured Overdraft which has gone from 11.39% to 11.54%, a rise of 15 bps. (Its Personal Unsecured Overdraft rate is up the same amount to 15.39%).

For perspective, here is the recent change history for TSB Bank's floating rate product:

TSB Bank change history Change Floating
  % %
Start of 2016   5.74
March 10, 2016 (the -25 bps OCR reduction) 0.00 5.74
March 11, 2016 -0.20 5.54
August 16, 2016 (the -25 bps OCR reduction) 0.00 5.54
November 22, 2016 (the -25 bps OCR reduction) 0.00 5.54
February 9, 2017 (the no-change OCR decision) 0.00 5.54
March 14, 2017 +0.11 5.65
March 23, 2017 (the no-change OCR decision) 0.00 5.65
May 11, 2017  (the no-change OCR decision) 0.00 5.65
June 22, 2017 +0.15 5.80

Here is a snapshot of the current floating rates offered by key retail banks and their recent change history:

below 80% LVR as at
Dec 31, 16
as at
Jan 31, 17
as at
Mar 31, 17
as at
Jun 12, 17
      %  
5.59 5.69 5.79 5.79
ASB 5.65 5.80 5.80 5.80
5.64 5.79 5.90 5.90
Kiwibank 5.25 5.40 5.55 5.70
Westpac 5.65 5.65 5.75 5.84
         
5.55 5.55 5.65 5.75
HSBC 5.59 5.59 5.59 5.79
HSBC 5.59 5.54 5.79 5.79
5.54 5.54 5.65 5.80

TSB Bank has not made term deposit rate changes at this time.

All current mortgage rates are here.

All current term deposit rates are here and here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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5 Comments

Get in now before it's too late! House price will never be cheaper and will double every 7-10 years.

Giggle... "buy now or be priced out forever" (I have a relative that fell for this line a bit over a decade ago, and then fell into the trap of renting the moneypit out instead of realizing his loss. He is still underwater on the property, and with a negative cashflow!?!).

As to the floating mortgage rates, not that far from the dreaded 7% value used for mortgage stress testing that everyone thinks will never happen again. Just another 1.2% to get there...

I think that it is low odds of getting to 7% in the near future. But then again, I haven't been expecting continued increases in the rates in the past few months so my expectations are not accurate in predicting interest rate changes.

The problem the banks have - and the reason brokers I know are expecting interest rate rises - is that they are looking for ways to make money, but they're no longer able to just keep writing more and more loans, especially as parent banks look to recapitalise. So they're having to squeeze their existing customers for more money.

What people should do is check their finances and their capacity to maintain mortgage payments. If they think they could manage a mortgage then they should go to a mortgage broker and then they will find out how much the bank will actually lend them.

Plenty of people end up worse off after buying a house. Or they have a dual income which reduces to one income for various reasons. Look at all the people desperate to sell or going through mortgagee sales. They are exiting the housing market and losing money in the process, many would have been better off renting.

This article and many others suggest the doubling every 10 years is a myth. In Australia the growth over 10 years averaged at 72%
https://www.corelogic.com.au/news/property-prices-double-every-decade

No doubt that Auckland has seen much higher growth than this over the last 4-5 years so that is an exception, but it's not accurate to suggest that houses everywhere in NZ always double every 10 years, they really don't, and when adjusted for inflation, all the housing growth also looks a lot less impressive.